INSIGHT-Walmart discovers why the "last mile" is the hardest

EAST BRUNSWICK, N.J., July 30 (Reuters) - Standing before an audience of 14,000 people last year, Walmart Inc executives described a radical plan to help it fend off Amazon.com Inc and other online delivery services from stealing its customers.

Walmart’s own store employees would bring online orders directly to shoppers’ homes after completing their usual shifts of up to nine hours on the sales floors. Aiming to lower the retailer’s shipping costs by tapping its massive workforce, the program was part of a multi-pronged strategy to boost its $11.5 billion U.S. ecommerce business and tackle one of the biggest challenges in retail: the so-called “last mile” of delivering goods to online customers.

Its workers, meanwhile, could earn extra money on top of their hourly pay, which starts at $11 an hour.

“Just imagine associates all over the world delivering orders to customers on their way home,” Marc Lore, head of Walmart’s e-commerce operations, said at its annual meeting in June 2017. “That can be a real game-changer.”

But months later, Walmart quietly retreated from its original vision for the pilot program - launched in New Jersey and Arkansas - and ended it altogether in January, according to company documents obtained by Reuters and interviews with more than two dozen Walmart employees.

The story behind the foundering employee delivery initiative, which has not been reported, offers insight into Walmart’s ongoing attempts to find unconventional ways to close the gap with Amazon in the game of cheap, rapid, doorstep delivery of packages. According to Walmart data, people who shop in stores and become online customers spend nearly twice as much as those who shop at one or the other.

Here in New Jersey, Walmart started the program with the idea that store employees could courier all items that would fit in a car. But the initiative failed to gain traction with skeptical employees who had to use their time after work, according to sixteen workers who participated in the trial.

Walmart is now testing a more modest service with just four Walmart employees who deliver goods from a single store in Woodstock, Georgia, Reuters has learned. In this latest initiative, Walmart is also overhauling the guidelines for employees and limiting deliveries to groceries and related items such as paper plates.

Walmart spokeswoman Molly Blakeman confirmed that the retailer ended its first experiment early this year, without elaborating. Walmart is testing a variety of ways to deliver merchandise, she said, and is “encouraged by what we’re seeing” in the Georgia store.

Despite having 4,700 U.S. stores within 10 miles (16 km) of 90 percent of the U.S. population, Walmart is still trying to figure out how to efficiently make deliveries and has poured billions of dollars into ecommerce in recent years.

But as recently as the last holiday season, its online sales disappointed some investors.

Walmart caters to U.S. online shoppers by having them drive up to their local store themselves to collect merchandise they ordered online. It also partners with shippers such as FedEx Corp, the United States Postal Service (USPS) for routine deliveries.

Still, Walmart aims to be able to deliver groceries to more than 40 percent of households in the country by the end of this year. Globally, Walmart is experimenting with deliveries by motorbike in Mexico and with new small supermarkets in China to make deliveries in 30 minutes or less. In Japan, Walmart is opening a new warehouse to support orders, and expanding its online offerings to include meal kits.

Earlier this year, Reuters reported the retailer’s delivery partnerships with Uber and Lyft ended after the ride-hailing services struggled to deliver people and packages together. It continues to rely on third-party companies such as Postmates, Deliv and Doordash to help deliver groceries, and last week partnered with Alphabet Inc’s Waymo.

SKEPTICAL DRIVERS

Walmart’s associate delivery pilot program in the leafy, middle-class suburb of East Brunswick, New Jersey, started with store managers pitching employees an unusual new way to boost pay. Those who passed background checks could moonlight as drivers for the Walmart.com delivery service, they said.

Some staffers, who did not wish to be named fearing retribution for speaking to the media, told Reuters they balked at having to use their own cars and personal insurance policies for a program that would benefit Walmart.

To entice them to sign up, Walmart offered free TVs and iPads as gifts, they said. Eventually, about 50 of the store’s more than 150 associates initially signed up, they added, though many had no prior experience as couriers with a delivery service.

Walmart declined comment on this.

Fourteen of the sixteen Walmart employees told Reuters that they were put off by the program’s poor compensation. And all of them expressed concern over who would be responsible if they got into an accident or if merchandise was lost.

For example, the East Brunswick Walmart paid store associates $2 per package, with participants making three to five total drop-offs during a typical trip within a ten mile radius, participants told Reuters. It also reimbursed them 54 cents for fuel per mile, over the federal fuel reimbursement rate of 53.5 cents in 2017, and offered them an extra hour of overtime pay.

But every employee Reuters spoke to who signed up said they typically lost at least 30 minutes of time, waiting at the store after their shifts ended to collect the items and were never compensated for it.

Walmart didn’t offer more than one hour of overtime even if it took more than an hour to deliver orders after finishing their 40 hour work week, former participants said. Walmart disputed this saying it paid workers overtime when they exceeded 40 hours.

All sixteen workers who had participated in the program said delivery of five packages would generally take them more than two hours to complete. If a worker drove 10 miles to drop five packages, that would earn them $15.40 in compensation per package and fuel, before overtime pay.

Rival Amazon pays independent drivers $18 to $25 an hour for deliveries, and the fuel costs belong to the driver, according to the Amazon Flex website. Amazon declined to comment on the story.

One of the Walmart employees said in only one instance did she earn an additional $100 at the end of the week – after making nearly a dozen deliveries.

“The money was never worth it... and they stopped paying mileage in the end,” said an employee who did not wish to be named.

Twelve out of sixteen employees said they were not paid mileage for the final deliveries they made before the program was shut. Walmart did not comment on mileage payments that employees said were not made.

As for insurance, risk and liability for accidents and lost packages, many of the employees Reuters spoke with said they were unclear if Walmart would shoulder the responsibility or not.

DOWN TO A TEAM OF FOUR

Now, an initiative known internally as ‘Associate Delivery 2.0’ is being run with four employees hired specifically as delivery drivers in Woodstock, Georgia, according to company documents and interviews.

To build demand, Walmart will waive the fee for the first delivery order if it is for $50 or more, according to a Walmart promotional pamphlet at the store. For subsequent orders, the retailer’s mobile app offered delivery on a minimum $30 order for a fee of $7.99 to $9.95.

The team of three men and one woman, working separately, load up their cars to make deliveries to shoppers within ten miles.

Maurice Thomas, who is one of the four Walmart employees, illustrates the retailer’s new tack. A hybrid between a delivery driver and a store employee, Thomas’s role is newly created to revive the initiative, he and other store employees in Georgia said.

Thomas took a job at the Woodstock store three years ago unloading trucks. Now he uses his own car, fuel and personal insurance to deliver 6 to 7 packages to shopper’s homes every day.

“I have a fixed schedule and doing this is much better than unloading trucks,” said Thomas, who is 28.

Walmart pays Thomas $12.50 an hour and reimburses 54.5 cents a mile, comparable to the 54.5 federal fuel reimbursement rate in 2018, he said. If Thomas drove 10 miles within an hour to make deliveries, he would earn $18.30.

Thomas said every two weeks he is usually left with about $130-$140 dollars after buying fuel.

Walmart informed employees in Georgia they would have to use their own car insurance policies when they were hired, Blakeman said. But the retailer will cover any expenses that their personal insurance policies won’t cover, she added.

An internal document seen by Reuters provides Walmart delivery workers with a specific new protocol. Among the guidelines: “do not mix orders” and “make sure you have your ‘thank you’ cards ready” to leave inside their deliveries.

“We’re testing and learning how best to use associates,” said Walmart spokesman Greg Hitt. “There’s a reason for pilots.”

Reporting by Nandita Bose in East Brunswick, New Jersey and
Woodstock, Georgia; Additional reporting by Michelle Conlin in
New York, Editing by Vanessa O'Connell and Edward Tobin